CANADA FX DEBT-C$ hits year low after Flaherty remarks

Mon Jan 31, 2011 1:21pm EST
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 * C$ hits session low of 99.40 U.S. cents
 * Bonds softer across curve
 * Flaherty says challenge to employment numbers
 * Flaherty: 50 percent chance of election
 (Recasts, adds details, comments)
 By Claire Sibonney
 TORONTO, Jan 31 (Reuters) - The Canadian dollar slipped
below parity against the U.S. dollar to its lowest level this
year on Monday after Finance Minister Jim Flaherty commented on
employment and the chances of a snap election.
 The currency CAD=D4 skidded almost a penny to as low as
C$1.0060 to its U.S. counterpart, or 99.40 U.S. cents, its
weakest level since Dec. 28.
 The Canadian dollar had rallied above parity earlier in the
day after data showed monthly domestic growth beat expectations
and as fears over political turmoil in Egypt eased up a bit.
 Flaherty told reporters he expects Canada to have a
challenge in increasing employment, pointing to the need for
the private sector to pick things up. He also said he saw a 50
percent chance that his upcoming budget, to be presented in
March, will be defeated in Parliament, which would trigger an
election. [ID:nN31230433]
  Canada's employment report for January will be released on
Friday and on average analysts expect a gain of 15,000 jobs in
the month, according to Reuters estimates. [ID:nN28144465]
 "(Flaherty's) forward-looking comment on employment I think
perhaps alerted people to the risk that Friday's numbers might
be a bit weaker than expected," said Shaun Osborne, chief
currency strategist at TD Securities.
 "It's probably a bit too early for him to know any
specifics on the data, but I think that's  really what the
market is reacting to."
 At 12:49 p.m. (1749 GMT), the Canadian currency was
C$1.0016 to the U.S. dollar, or 99.84 U.S. cents, down from
Friday's North American close of C$1.0011 to the U.S. dollar,
or 99.89 U.S. cents, which marked the Canadian dollar's first
finish below parity with the greenback in a month.
 Osborne said stop-loss orders accumulated around the
C$1.0010-20 area, with the currency breaking stiff short-term
support levels around the C$1.0030-35 area. The move also
marked a break of a significant downtrend for the U.S. dollar
on the charts going back more than two years.
 The next key support level for the Canadian dollar, he
noted, is a technical retracement at C$1.0067. Osborne said he
expected trading to consolidate for the rest of the day.
 "The Canadian dollar probably was liable to soften up a
little anyway. CAD is still somewhat susceptible to the
risk-on, risk-off kind of environment, we saw that very clearly
on Friday," he said.
 "Risk appetite today has probably come back a little bit
but the Canadian dollar just doesn't seem to be able to benefit
... It just says to me that people aren't keen on the Canadian
dollar at the moment."
  Canadian bond prices were slightly softer across the
curve, tracking U.S. Treasuries, as investors took profits from
a flight-to-safety rally driven by mounting unrest in Egypt.
 The two-year bond CA2YT=RR was off half a Canadian cent
to yield 1.681 percent, while the 10-year bond CA10YT=RR fell
26 Canadian cents to yield 3.278 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)